Economic recovery continues, albeit slowly

Media release
ASB Quarterly Economic Forecast
21 October 2010

Economic recovery continues, albeit slowly

• Recovery in the global economy continues … but slowly
• NZ is following suit - with pockets of weakness remaining in some sectors
• The RBNZ is now likely to hold off raising the OCR until March 2011

New Zealand’s economic recovery may be slow, but we are unlikely to fall back into recession despite uncertainties in the global economy and local disruptions, according to the latest ASB Quarterly Economic Forecast.

ASB Chief Economist Nick Tuffley says that although the pace of the New Zealand recovery has been very slow for some, the recovery is expected to continue. “We have stressed for some time now that the recovery out of the recession is going to be gradual as the economy rebalances,” he says.

“It has been a particularly rough time for mainlanders over the last couple of months, with the receivership of South Canterbury Finance, the Canterbury earthquake, and the heavy snowstorms that affected Southland in the midst of lambing season.”

“The Canterbury Earthquake will have the most resounding impact on the New Zealand economy, affecting the wealth of the country from several quarters, including through accumulated spending on insurance premiums and tax, as well as the personal costs to those who have sustained damage to their properties and businesses. Our estimates suggest that the Canterbury Earthquake is likely to shave off around 0.2 percentage points from the September quarter growth. However the December quarter is likely to receive a substantial boost as the early stages of construction kick in.”

Mr Tuffley says that a global recovery is now underway despite some commentators highlighting the risks of a double-dip recession in the US and elsewhere. “This preoccupation with a double-dip recession overlooks that a weak recovery has long been part of global economic forecasts, and ignores some positive economic developments. For example, the US is benefitting from a massive productivity boost and competitive gains, while the Asian region has outperformed, despite US and European export markets remaining subdued,” he says.

“All of these factors are impacting on our local situation. However the silver lining from a New Zealand perspective is that with our economy continuing to look somewhat sluggish, the Reserve Bank is likely to keep interest rates on hold until March.”

“These hiccups in the recovery aside, we expect that New Zealand will continue on the slow and winding path to recovery without a second dip along the way,” he says.

The ASB Quarterly Economic Report is available on ASB’s website.